Saturday, February 12, 2011

Cisco’s Fascinating Flaky Forecast

The numbers are staggering: global mobile data traffic grew 2.6-fold in 2010, nearly tripling for the third year in a row; mobile video traffic will exceed 50% for the first time in 2011; and Cisco predicts that global mobile data traffic will increase 26-fold between 2010 and 2015. Big numbers forecast by someone who’ll make money if they come true are always suspect, though. While the historical data are largely indisputable – and amazing – I think the forecasts are bogus, though in interesting ways.

Flags went up at the projection of 92% CAGR in mobile traffic growth over the next five years. From the scant details on assumptions provided in the report, I suspect the overall growth is driven (more than driven, in fact) by the growth in the number of users, not by increases in per-user usage. For example, Cisco predicts that the number of mobile-only Internet users will grow 25-fold between 2010 and 2015 to reach 788 million, over half of them in “Asia Pacific” (defined to exclude Japan).

Working back from their forecast data volumes and assumptions on user growth, however, suggests that usage per user (I prefer to think in terms of Megabits/second rather than ExaBytes/month) doesn’t increase over the study period, an in fact declines.

The growth in traffic thus hinges on the global user base growing to almost 800 million mobile-only users in five years, from 14 million today. That’s staggering, and to me implausible.

If nothing else, though, this demonstrates that using Cisco’s meganumbers don’t necessarily imply an impending bandwidth crunch doesn’t hold water. It doesn’t mean there isn’t going to be one, just that growth numbers don’t imply/require it, because they’re in large part driven by hundreds of millions of new users in China.

A more fundamental flaw is that the analysis is entirely demand driven. This was probably fine when Cisco was predicting wireline use, since there is so much dark fiber that supply is essentially unlimited. However, one cannot ignore the scarcity of radio licenses. We’re near the Shannon limit of the number of bits/second that can be extracted from a Hertz of bandwidth, and massive new frequency allocations will not show up overnight. An alternative is to reduce cell size and serve more users per cell by using smart antennas; however, such a build-out will take time. I don’t know how much extra traffic one can fit into the existing infrastructure and frequencies, but Cisco should at least have made an argument that this doesn’t matter, or that it can ramp up as fast as the demand.

While there may be spare capacity in China, there’s clearly a supply question in markets that are already halfway up the growth curve, though, like the US. Cisco ignores this. In North America they’re forecasting that the number of mobile-only internet users will go from 2.6 million to 55.6 million (!). It’s reasonable to assume that these most of these new users are in places that are already consuming a lot of capacity, and that one will need more radio bandwidth to deliver more data throughput.

Cisco is forecasting that throughput will go from 0.05 ExaB/mo to 1.0 ExaB/mo for North American users. That’s a factor of 20. It’s hard to see how you get there from here without massive reengineering of the infrastructure.

One could get 2x by doubling available licenses from 400 MHz to 800 MHz; the FCC is talking about finding 500 MHz of new licenses for mobile data, but this is a pipe dream; if not in principle, then in the next five years given how slowly the gears grind in DC.

The extra throughput isn’t coming from offloading traffic from the wireless onto the wired network; Cisco considered this, and is forecasting 39% for offload that by 2015. Let’s say they’re conservative, and it’s 50%: that’s just another 2x.

Spectral efficiency, the bits/second that can be extracted from a Hertz of bandwidth, isn’t going to increase much. Engineers have made great strides in the last decade, we’re approaching the theoretical limits. Maybe another 50%, from 4 bps/Hz to 6 bps/Hz? Even an implausible doubling to 8 bps/Hz is just another 2x.

So by using heroically optimistic assumptions one can get an 8x increase in capacity – nowhere near that 20x Cisco is forecasting.

And last but not least, the forecast method ignores Econ 101: if demand increases with limited supply, prices will go up, and this will suppress demand. Not only does the study ignores supply, it also ignores supply/demand interactions.

Still, let’s stipulate that the demand forecast is accurate, and that grant me that supply is going to be constrained. The consequence is that there will be millions of screaming customers over the next few years when they discover that the promise of unlimited mobile connectivity cannot be delivered. The pressure on government will be huge, and the opportunities for innovations that improve effective throughput and the user experience in a world of scarcity (relative to expectations) will be immense. A crisis is coming; and with it the opportunity to make fundamental fixes to how wireless licenses are managed, and how applications are delivered.